ECB President Draghi sends Euro lower by hinting at more QE

Enrique Díaz-Álvarez20/Nov/2015Currency Updates

Mario Draghi sent the Euro sharply lower this morning by confirming what we already knew, that the European Central Bank is all but certain to increase monetary stimulus at its next meeting in December.

The President of the ECB claimed that the existing programme was working well, although policymakers “will do what [they] must” to raise inflation. Draghi also suggested that the Governing Council could change the level of its deposit rate. We now see it as very likely that the ECB will cut its deposit rate (which currently stands at -0.2%) even further into negative territory in December. This should send the Euro lower against almost all of its peers in the long run.

Despite the Federal Reserve minutes on Wednesday night appearing to give a green light to a December interest rate hike, the US Dollar declined during the London trading session yesterday, ending a run of four straight session increases.

Meanwhile, the Pound strengthened against the US Dollar again yesterday after traders completely overlooked underwhelming retail sales figures. The historically volatile measure of sales declined by 0.6% for the month, although critically in the three months to October sales still rose by close to 1%, suggesting the underlying trend in consumer spending remains strong.

Major currencies in detail:


Another strong trading session for Sterling saw the currency appreciate by 0.3% versus the US Dollar to its strongest position in two weeks.

The latest retail sales figures disappointed in the UK yesterday and hinted at a pre-Christmas lull. The monthly decline ensured that on an annualised basis, sales rose by only 3.8% last month, compared to the revised 6.2% reading that was recorded the month previous. The slight dip on a monthly basis may be due to the upward boost retailers received in September as a result of the Rugby World Cup.

The strong appreciation of the Pound following the retail sales release suggests a lack of concern among traders of the overall strength of UK domestic demand. The Bank of England’s attention is likely to be firmly fixed on inflation and labour data.

There’s little data to be released in the UK today, with public sector net borrowing this morning unlikely to be a major market mover.


Despite relatively dovish minutes out of the ECB, the Euro appreciated against both the Pound and the Dollar, ending 0.5% up versus the Greenback.

Yesterday’s ECB minutes confirmed what we’ve been saying for a while, that a December increase in monetary stimulus is very much a possibility. Policymakers voiced concerns over inflation remaining too low for too long, suggesting that possible increases of downside risks could undermine expectations that inflation would return back to its 2% target level.

The central bank even considered ramping up easing measures at its October meeting. In the end, it opted to wait until December on signs that the Eurozone economy had so far proved resilient to weaker global demand.


The US Dollar index declined for the first time in four sessions yesterday, down by 0.5%.

A lack of major announcements meant that Dollar volatility was minimal. The weekly jobless claims figure came in right in line with expectations. Claims declined to 271,000 last week, with the four-week moving average solid once again at 270,750.

Meanwhile, there was some encouraging manufacturing data, with the Philly Fed index increasing this month to 1.9 following two consecutive months of negative readings. However, indexes for new orders, shipments and work hours continued to point to an overall weakness in the sector, hampered by the global slowdown and strong Dollar.

With no major data out of the US economy today, attention among Dollar traders will turn to announcements next week. A speech by Fed member Bullard could be the only major market mover.

Rest of the world

In line with our expectation, the South African Reserve Bank increased its benchmark interest rate by 25 basis points yesterday to 6.25%, in an attempt to alleviate inflationary pressure.

In our view, the recent Rand sell-off has been excessive and unwarranted, and we expect the currency’s significant supportive factors to help reverse much of its recent depreciation before year-end.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.